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I've owned a two family home for several years. I occupy the first floor and rent the second floor. I plan to purchase and move into another home and want to know how the profit will be taxed?
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The first floor is your residence and could qualify for the residence exclusion if you have owned in lived in it for at least 24 of the 50-month period prior to sale; the second floor is investment property and unless you use IRC Sec. 1031 (tax-free exchange provisions) as to the second floor, it will be taxed upon sale at the following rates: (i) 25% federal to the extent of depreciation recapture; and (ii)15% federal long-term capital gains. Your state may tax the gain as well.
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We have been trying to sell our home but the market is so bad that we could lose $20,000 if we sell. Could we use it as rental property; what, if any, losses may we claim on rental property?
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If you convert your residence to a rental and rent it out for 3 years and then sell it for a loss, you may claim a long-term capital loss. Of course, if prices increase and you sell it you will have to claim a capital gain. The residency exclusion rules apply to the sale of a residence owned and used as a residence for at least 24 of the 50 month period prior to sale. That is why you need to rent your home for at least 3 years, to avoid the residency rules that prohibit claiming a loss on a principal residence.
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We are hoping to sell our home during 2004. The original house was demolished and replaced with a larger residence and construction involved my labor. May I include my labor in the adjusted basis of the home?
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You cannot count your personal labor as part of the adjusted basis unless you declared your labor as income on your tax return. You can add all costs of construction material and labor for which you paid to third parties to your basis.
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I'm a US citizen and plan to work at my employer's home office in a foreign country. Will I owe any US federal or state taxes?
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As a U.S. citizen, you are subject to U.S. tax laws and are taxed on your world-wide income. If you meet the foreign earned income exclusion requirements (generally, the exclusion applies to the first $70,000 of earned income, provided you are outside the U.S. for at least 300 days during a continuous 12-month period), then a portion or perhaps all of your earned income will not be subject to U.S. taxation. Although state income tax laws differ, if you completely sever your ties with a state, you should not be taxed as a resident of that state. There could be specific state exemptions if you work outside the state for a certain period of time.
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Part Residence, Part Rental
